BANK ONE CORPORATION
INDEX TO FINANCIAL REVIEW

1   Five Quarter Summary of Selected Financial Information  
2   Application of Critical Accounting Policies 
2   Summary of Results 
6   Business Segment Results 
6   Business Segment Results and Other Data 
27   Balance Sheet Analysis 
27   Risk Management 
28       Liquidity Risk Management 
28       Market Risk Management 
30   Credit Portfolio Composition 
34   Asset Quality 
37   Allowance for Credit Losses 
40   Derivative Financial Instruments 
41   Loan Securitizations and Off-Balance Sheet Activities 
44   Capital Management 
46   Forward-Looking Statements 
47   Consolidated Financial Statements 
51   Notes to Consolidated Financial Statements 
62   Selected Statistical Information 
65   Report of Management 
66   Review Report of Independent Public Accountants 
67   Form 10-Q 

FIVE QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION
Bank One Corporation and Subsidiaries

Three Months Ended
(In millions, except per share data, ratios, and headcount)
June 30
2003

March 31
2003

December 31
2002

September 30
2002

June 30
2002

INCOME STATEMENT DATA:                        
Total revenue, net of interest expense   $ 4,108   $ 3,977   $ 4,232   $ 4,185   $ 4,280  
Net interest income    1,981    1,992    2,156    2,197    2,042  
Net interest income-  
  fully taxable-equivalent basis ("FTE") (1)    2,020    2,029    2,192    2,235    2,078  
Noninterest income    2,127    1,985    2,076    1,988    2,238  
Provision for credit losses    461    496    628    587    607  
Noninterest expense    2,425    2,320    2,390    2,420    2,444  
Net income    856    818    842    823    843  
PER COMMON SHARE DATA:  
Net income:  
      Basic   $ 0.76   $ 0.71   $ 0.73   $ 0.71   $ 0.72  
      Diluted    0.75    0.71    0.72    0.70    0.71  
Cash dividends declared    0.21    0.21    0.21    0.21    0.21  
Book value    19.70    19.44    19.28    18.79    18.37  
BALANCE SHEET DATA - ENDING BALANCES:  
Loans   $ 144,583   $ 144,747   $ 148,125   $ 150,389   $ 147,728  
Total assets    299,463    287,864    277,383    274,187    270,343  
Deposits    172,015    167,075    170,008    164,036    157,518  
Long-term debt (2)    46,070    44,950    43,234    42,481    43,756  
Common stockholders' equity    22,257    22,316    22,440    21,925    21,563  
Total stockholders' equity    22,257    22,316    22,440    21,925    21,563  
CREDIT QUALITY RATIOS:  
Annualized net charge-offs to average loans    1.35 %  1.35 %  1.65 %  1.55 %  1.62 %
Allowance to period end loans    3.35    3.31    3.20    3.17    3.19  
Nonperforming assets to related assets (3)    2.28    2.38    2.38    2.48    2.65  
FINANCIAL PERFORMANCE:  
Return on average assets    1.24 %  1.22 %  1.24 %  1.24 %  1.32 %
Return on average common equity    15.3    14.7    15.0    14.8    15.7  
Net interest margin    3.38    3.46    3.67    3.84    3.69  
Efficiency ratio    58.5    57.8    56.0    57.3    56.6  
CAPITAL RATIOS:  
Risk-based capital:  
     Tier 1    9.7 %  10.0 %  9.9 %  9.5 %  9.4 %
     Total    13.6    13.8    13.7    13.0    13.0  
Leverage    8.7    8.9    8.9    9.0    9.1  
COMMON STOCK DATA:  
Average shares outstanding:  
      Basic    1,132    1,148    1,157    1,162    1,174  
      Diluted    1,140    1,156    1,166    1,171    1,184  
Stock price, quarter-end   $ 37.18   $ 34.62   $ 36.55   $ 37.40   $ 38.48  
Headcount    72,323    74,077    73,685    73,535    73,579  

  (1) Net interest income-FTE includes tax equivalent adjustments of $39 million, $37 million, $36 million, $38 million and $36 million for the quarters ended June 30, 2003, March 31, 2003, December 31, 2002, September 30, 2002 and June 30, 2002, respectively.
  (2) Includes trust preferred capital securities.
  (3) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

1


APPLICATION OF CRITICAL ACCOUNTING POLICIES

Generally accepted accounting principles are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. Management of Bank One Corporation and its subsidiaries (the “Corporation”) must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of the Corporation’s significant accounting policies, see “Notes to the Consolidated Financial Statements” in the Corporation’s 2002 Annual Report on pages 84-108. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit and Risk Management Committee of the Corporation’s Board of Directors. For a discussion of applying critical accounting policies, see “Application of Critical Accounting Policies” beginning on page 35 in the Corporation’s 2002 Annual Report.

SUMMARY OF RESULTS
(All comparisons are to the same period in the prior year unless otherwise specified.)

Net income was $856 million, or $0.75 per diluted share. This compares to net income of $803 million, or $0.68 per diluted share, excluding the $40 million after-tax benefit from a restructuring charge reversal in the second quarter of 2002. Including this benefit, the prior year’s net income was $843 million, or $0.71 per diluted share. For the first half of 2003, net income totaled $1.7 billion, or $1.46 per diluted share. This compares to net income of $1.6 billion, or $1.35 per diluted share, excluding the $40 million after-tax benefit from a restructuring charge reversal in the second quarter of 2002. Including this benefit, the prior year’s net income for the first half of the year was $1.6 billion, or $1.38 per diluted share.

Net Interest Income

Net interest income represents the spread on interest earning assets over interest bearing liabilities, as well as loan fees, cash interest collections on problem loans, dividend income, interest reversals, and income or expense on derivatives used to manage interest rate risk. Net interest income was $2.0 billion, a decrease of $61 million, or 3%. Net interest margin decreased to 3.38% from 3.69%. For the first six months of 2003, net interest income was $4.0 billion, a decrease of $269 million, or 6%. Net interest margin for the same period decreased to 3.42% from 3.80%. For both the second quarter and the first half of 2003, approximately half of the decline in net interest income and margin resulted from actions taken in 2002 to position the Corporation more defensively against the possibility of rising interest rates. In 2002, the Corporation extended the duration of liabilities and repositioned the treasury investment portfolio, which reduced net interest income in 2003 due to the lower rate environment. Also contributing to the decreases were intentional reductions during 2002 in the Commercial Banking loan portfolio and throughout the period in certain Retail loan portfolios, with a modest impact due to yield compression in Card Services. See Note 7 for further details of the components of net interest income.

Noninterest Income

Noninterest income of $2.1 billion decreased $111 million, and as a percentage of total revenue decreased to 51.8% from 52.3%. For the first half of 2003, noninterest income of $4.1 billion decreased $95 million. For both periods, these decreases were primarily due to losses on the credit derivatives hedge portfolio and lower income derived from securitized loans. Partially offsetting the losses and lower income were net investment securities gains. The components of noninterest income for the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
  Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Banking fees and commissions     $ 458   $ 493   $ (35 )  (7 )% $ 898   $ 951   $ (53 )  (6 )%
Credit card revenue    911    962    (51 )  (5 )  1,762    1,871    (109 )  (6 )
Service charges on deposits    413    376    37    10    796    769    27    4  
Fiduciary and investment management fees    186    188    (2 )  (1 )  372    377    (5 )  (1 )
Investment securities gains    152    96    56    58    221    78    143    N/M  
Trading gains (losses)    (76 )  74    (150 )  N/M    (72 )  91    (163 )  N/M  
Other income    83    49    34    69    135    70    65    93  

  Total noninterest income   $ 2,127   $ 2,238   $ (111 )  (5 ) $ 4,112   $ 4,207   $ (95 )  (2 )
Noninterest income to total revenue    51.8 %  52.3 %  (0.5) %    50.9 %  49.8 %   1.1 %    

2


Quarterly Results

Banking fees and commissions of $458 million decreased $35 million, or 7%. Lower premiums from credit insurance products, lower fees resulting from the intentional reduction of non-branded ATM machines and the elimination of the teller service fee were the primary drivers of this decrease. Partially offsetting the decrease was an increase in fixed income and asset-backed origination fees.

        Credit card revenue of $911 million decreased $51 million, or 5%, primarily driven by lower yields earned on securitized loans, partially offset by higher interchange fees from increased card usage and increased securitization activity.

        Service charges on deposits of $413 million increased $37 million, or 10%. This increase resulted from higher Retail deposit service charges and higher global treasury services revenue.

        Net securities gains from treasury activities and the investment portfolios were $152 million, compared to net securities gains of $96 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        In the second quarter, trading produced losses of $76 million, a decrease of $150 million. This decrease resulted from the fair value decline in credit derivatives used to hedge the commercial loan portfolio and limit exposures to specific credits, partially offset by increased derivatives trading revenue.

        Other income increased by $34 million, or 69%. The primary driver of this increase was gains on sales of loans totaling $14 million in the current quarter compared to losses of $22 million in the year ago quarter.

Year-to-Date Results

Banking fees and commissions of $898 million decreased $53 million, or 6%. This decrease was the result of lower premiums from credit insurance products and lower fees from the intentional reduction of non-branded ATM machines, partially offset by an increase in fixed income and asset-backed origination fees and higher syndication fees.

        Credit card revenue of $1.8 billion decreased $109 million, or 6%. This decrease was primarily driven by lower income earned on securitized loans, modestly offset by higher interchange fees from increased card usage volume.

        Service charges on deposits of $796 million increased $27 million, or 4%. This increase stemmed from higher Retail deposit service charges.

        Net securities gains from treasury activities and the investment portfolios were $221 million, compared to net securities gains of $78 million. The prior year included the $261 million gain on the sale of the GE Monogram joint venture. Valuation adjustments included in each period’s net securities gains were primarily a result of changes in the value of the publicly traded equity market, the interest rate environment and economic conditions.

        Trading losses of $72 million decreased $163 million. This decrease was primarily the result of losses on credit derivatives used to hedge the commercial loan portfolio and limit exposures to specific credits, partially offset by greater derivatives and foreign exchange trading revenue.

        Other income of $135 million increased $65 million, or 93%, primarily the result of an increase in new securitization deals and gains associated with the sale of commercial loans and other assets.

3


Noninterest Expense

Total noninterest expense of $2.4 billion decreased $19 million, including a $63 million benefit from a restructuring charge reversal in the year ago quarter. Excluding this benefit, noninterest expense decreased $82 million, or 3%. The components of noninterest expense for the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
  Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
Salaries and employee benefits:                                    
  Salaries   $ 1,048   $ 941   $ 107    11 % $ 2,040   $ 1,861   $ 179    10 %
  Employee benefits    176    160    16    10    367    336    31    9  

    Total salaries and employee benefits    1,224    1,101    123    11    2,407    2,197    210    10  
Occupancy    166    170    (4 )  (2 )  331    328    3    1  
Equipment    118    99    19    19    229    202    27    13  
Outside service fees and processing    289    372    (83 )  (22 )  566    672    (106 )  (16 )
Marketing and development    215    265    (50 )  (19 )  441    536    (95 )  (18 )
Telecommunication    55    134    (79 )  (59 )  103    235    (132 )  (56 )
Other intangible amortization    32    29    3    10    64    62    2    3  
Other expense    326    337    (11 )  (3 )  604    637    (33 )  (5 )

  Total noninterest expense before  
    restructuring-related charges (reversals)    2,425    2,507    (82 )  (3 )  4,745    4,869    (124 )  (3 )
Restructuring-related charges (reversals)    -    (63 )  63    N/M    -    (63 )  63    N/M  

    Total noninterest expense   $ 2,425   $ 2,444   $ (19 )  (1 ) $ 4,745   $ 4,806   $ (61 )  (1 )

Headcount    72,323    73,579    (1,256 )  (2 )
Efficiency ratio    58.5 %  56.6 %  1.9 %    58.1 %  56.4 %  1.7 %

Quarterly Results

Salaries and employee benefits increased $123 million, or 11%. This increase was due to higher base and incentive compensation, as well as higher benefit expenses, partially offset by a 2% reduction in headcount.

        Equipment expense increased $19 million, or 19%, primarily due to increased depreciation expense on fixed assets acquired in the Corporation’s systems conversion efforts.

        Outside service fees and processing expense decreased $83 million, or 22%. The prior year period included termination and renegotiation fees for certain vendor contracts and various servicing and contract programming charges for the Corporation’s systems conversion efforts.

        Marketing and development expense decreased $50 million, or 19%, primarily due to decreased advertising expenditures for Card Services.

        Telecommunications expense decreased $79 million, or 59%, due to the absence of servicing expenses resulting from terminating and renegotiating certain vendor contracts.

        Other expense decreased $11 million, primarily related to lower operating and fraud expenses. Other expense includes freight and postage expense of $61 million and $63 million for 2003 and 2002, respectively.

Year-to-Date Results

Salaries and employee benefits increased $210 million, or 10%, due to higher base and incentive compensation and benefit expenses, partially offset by a reduction in headcount. The expense related to the fair value method of accounting for stock option and stock purchase plans for the six months ended 2003 and 2002 was $29 million and $12 million, respectively. The Corporation adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” in 2002.

        Equipment expense increased $27 million, or 13%, primarily due to higher depreciation expense on fixed assets acquired in the Corporation’s systems conversion efforts.

        Outside service fees and processing expense decreased $106 million, or 16%, as the Corporation continued to experience operational efficiencies resulting from renegotiated vendor contracts and the Corporation’s systems conversion efforts.

4


        Marketing and development expense decreased $95 million, or 18%, primarily due to lower advertising expenditures related to Card Services.

        Telecommunications expense decreased $132 million, or 56%, as a result of cost savings incurred through terminated and renegotiated vendor contracts.

        Other expense decreased $33 million, or 5%, despite continued reinvestment in the Corporation’s infrastructure. This was a result of lower operating and fraud expenses. Other expense includes freight and postage expense of $123 million and $131 million for 2003 and 2002, respectively.

Provision for Credit Losses

Provision for credit losses was $461 million for the second quarter and $957 million for the first six months of 2003, compared to $607 million and $1.3 billion, respectively, for 2002. These decreases were mainly a result of improving credit quality. During the quarter, Commercial Banking also experienced a continued reduction in the size of its loan portfolio. This, along with improved credit quality, led to the decision to reduce Commercial Banking’s allowance for credit losses by $95 million. This decrease in the allowance for credit losses was partially offset by an increase of $85 million in the Corporate line of business related to the change in the overall risk profile of the non-core portfolios. These portfolios are discussed on pages 6 and 23-26.

Applicable Income Taxes

The Corporation’s income before income taxes, as well as applicable income tax expense and effective tax rate for each of the periods indicated were:

Three Months Ended June 30
Six Months Ended June 30
(Dollars in millions)
2003
2002
2003
2002
Income before income taxes   $1,222   $1,229   $2,383   $2,371  
Applicable income taxes  366   386   709   741  
Effective tax rate  30 % 31 % 30 % 31 %

        Applicable income tax expense for all periods included the benefit from tax-exempt income, tax-advantaged investments and general business tax credits, partially offset by the effect of nondeductible expenses.

5


BUSINESS SEGMENT RESULTS

The Corporation is managed on a line of business basis. The business segments’ financial results presented reflect the current organization of the Corporation. For a detailed discussion of the various business activities of the Corporation’s business segments, see pages 38-51 of the Corporation’s 2002 Annual Report.

        The following table summarizes net income (loss) by line of business for the periods indicated:

Three Months Ended June 30
Six Months Ended June 30
(In millions)
2003
2002
2003
2002
Retail   $ 373   $ 371   $    768   $    735  
Commercial Banking  249   147   466   290  
Card Services  279   308   527   547  
Investment Management  85   103   165   204  
Corporate  (130 ) (86 ) (252 ) (146 )

  Net income  $ 856   $ 843   $ 1,674   $ 1,630  

BUSINESS SEGMENT RESULTS AND OTHER DATA

The information provided in each of the line of business tables is based on management information systems, assumptions and methodologies that are under continual review by management. Information provided beginning with the caption entitled “Financial Performance” is included herein for analytical purposes only.

        In the second quarter of 2003, the Corporation ceased origination of wholesale first mortgage and brokered home equity loans to focus on direct lending. In order to more clearly report the results of the core Retail businesses separate from the non-core businesses, the following portfolios were transferred to the Corporate line of business:

(In millions)
June 30
2003

Brokered home equity:    
  Previously reported as discontinued  $  2,467  
  Remaining portfolio  6,618  
Auto lease (and related portfolios)  2,906  

Total transferred portfolios  $11,991  

        The Corporation is currently evaluating its alternatives with respect to these portfolios. All prior period data for the Retail and Corporate lines of business has been adjusted to reflect the transfer of these portfolios. See page 26 for a supplemental table of the transferred portfolios included in the Corporate line of business.

6


Retail
Retail provides a broad range of financial products and services, including deposits, investments, loans, insurance, and online banking to consumers and small business customers.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (2) (3)   $1,077 $1,048 $29  3 % $2,199   $2,141 $ 58    3 %
  Banking fees and commissions (4)    175    187    (12 )  (6 )  364    392    (28 )  (7 )
  Credit card revenue (5)    59    49    10    20    112    92    20    22  
  Service charges on deposits (6)    225    196    29    15    429    397    32    8  
  Other income    2    13    (11 )  (85 )  15    24    (9 )  (38 )

    Total noninterest income    461    445    16    4    920    905    15    2  

      Total revenue, net of interest expense    1,538    1,493    45    3    3,119    3,046    73    2  
Provision for credit losses    108    107    1    1    224    246    (22 )  (9 )
Salaries and employee benefits    407    379    28    7    793    763    30    4  
Other expense    435    437    (2 )  -  892  891  1   -

Total noninterest expense before                                  
  restructuring-related charges (reversals)    842    816    26    3    1,685    1,654    31    2  
Restructuring-related charges (reversals)    -  (18 )  18    N/M    -  (18 )  18    N/M  

  Total noninterest expense    842    798    44    6    1,685    1,636    49    3  

Income before income taxes    588    588    -  -  1,210  1,164  46   4
Applicable income taxes    215    217    (2 )  (1 )  442    429    13    3  

  Net income (7)   $ 373   $ 371   $ 2    1 % $ 768   $ 735   $ 33    4 %

FINANCIAL PERFORMANCE:  
Return on average common equity    31 %  31 %  0 %    32 %  31 %  1 %
Efficiency ratio    55    53    2        54    54    -  
Headcount    31,812    33,160    (1,348 )  (4 )%

ENDING BALANCES:  
  Small business commercial   $9,775 $9,568 $207  2 %
  Home equity    23,715    16,825    6,890    41  
  Vehicle    13,313    13,583    (270 )  (2 )
  Other personal    6,902    7,733    (831 )  (11 )

      Total loans (8)    53,705    47,709    5,996    13  
Assets    56,900    51,408    5,492    11  
Demand deposits    29,280    26,224    3,056    12  
Savings    40,066    37,865    2,201    6  

  Core deposits    69,346    64,089    5,257    8  
Time    19,486    24,623    (5,137 )  (21 )

  Total deposits    88,832    88,712    120    -  
Equity    4,774    4,774    -    -  

AVERAGE BALANCES:  
  Small business commercial   $9,724 $9,534 $190  2 % $9,695   $9,489 $ 206    2 %
  Home equity    22,659    16,459    6,200    38    21,857    16,201    5,656    35  
  Vehicle    13,402    13,549    (147 )  (1 )  13,602  13,534    68    1  
  Other personal loans    7,108    7,904    (796 )  (10 )  7,596    8,616    (1,020 )  (12 )

      Total loans    52,893    47,446    5,447    11    52,750    47,840    4,910    10  
Assets    56,261    51,063    5,198    10    55,929    51,040    4,889    10  
Demand deposits    28,809    25,921    2,888    11    28,206    25,544    2,662    10  
Savings    40,107    37,806    2,301    6    39,842    37,464    2,378    6  

  Core deposits    68,916    63,727    5,189    8    68,048    63,008    5,040    8  
Time    20,095    24,822    (4,727 )  (19 )  20,635  25,092    (4,457 )  (18 )

  Total deposits    89,011    88,549    462    1    88,683    88,100    583    1  
Equity    4,774    4,774    -    -    4,774    4,774    -    -  

7


Retail – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002 (1)
Amount
Percent
2003
2002 (1)
   Amount
Percent
CREDIT QUALITY                                    
Net charge-offs:  
  Small business commercial   $ 16   $ 18   $ (2 )  (11 )% $ 27   $ 32   $ (5 )  (16 )%
  Home equity    27    19    8    42    53    50    3    6  
  Vehicle    46    41    5    12    93    106    (13 )  (12 )
  Other personal loans    24    29    (5 )  (17 )  42    55    (13 )  (24 )

      Total net charge-offs    113    107    6    6    215    243    (28 )  (12 )

Annualized net charge-off ratios:  
  Small business commercial    0.66 %  0.76 %  (0.10 )%    0.56 %  0.67 %  (0.11 )%
  Home equity    0.48  0.46  0.02    0.48  0.62  (0.14 )
  Vehicle    1.37  1.21  0.16    1.37  1.57  (0.20 )
  Other personal loans    1.35  1.47  (0.12 )    1.11  1.28  (0.17 )
      Total net charge-offs    0.85  0.90  (0.05 )    0.82  1.02  (0.20 )

Nonperforming assets:  
  Commercial   $ 255   $ 251   $ 4    2 %
  Consumer (9)    315    289    26    9  

Total nonperforming loans (9) (10)    570    540    30    6  
    Other, including other real estate owned ("OREO")    218    168    50    30  

      Total nonperforming assets    788    708    80    11  
Allowance for credit losses   $ 688   $ 684   $ 4    1  
Allowance to period end loans (8)    1.33 %  1.48 %  (0.15 )%
Allowance to nonperforming loans (9) (10)    121    127    (6 )
Nonperforming assets to related assets (11)    1.46  1.48  (0.02 )

DISTRIBUTION:  
Number of:  
  Banking centers    1,803    1,773    30    2  
  ATMs    4,093    4,956    (863 )  (17 )
  Relationship bankers    2,823    2,333    490    21  
  On-line customers (in thousands)    1,922    1,269    653    51  
  Personal demand accounts (in thousands)    4,541    4,304    237    6  
  Business demand accounts (in thousands)    501    492    9    2  
  Debit cards issued (in thousands)    4,946    4,492    454    10  

RETAIL BROKERAGE:  
Mutual fund sales   $ 774   $ 637   $ 137    22 $1,351 $1,217 $ 134    11  
Annuity sales    759    814    (55 )  (7 )  1,525    1,611    (86 )  (5 )

  Total investment sales volume    1,533    1,451    82    6    2,876    2,828    48    2  
Market value customer assets - end of period (in billions)    $30.5 $26.4 $4.1  16 %  
Number of customers - end of period (in thousands)    694    667    27    4  
Number of dedicated investment sales representatives    874    761    113    15  

             N/M–Not meaningful.

  (1) Prior period data has been adjusted for the transfer of the non-core portfolios from the Retail line of business to the Corporate line of business.
  (2) Net interest income is presented rather than gross interest income and gross interest expense because the Corporation relies primarily on net interest income to assess the performance of the segment and make resource allocations.
  (3) Net interest income-FTE includes tax equivalent adjustments of $6 million and $5 million for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $11 million and $10 million, respectively.
  (4) Banking fees and commissions include insurance fees, documentary fees, commitment fees, annuity and mutual fund commissions, leasing fees, safe deposit fees, official check fees, ATM interchange and miscellaneous other fee revenue.
  (5) Credit card revenue includes credit card fees in both the Card Services and Commercial lines of business, debit card fees, merchant fees and interchange fees.
  (6) Service charges on deposits include deficient balance fees, non-sufficient funds/overdraft fees and other service related fees.
  (7) Net income before restructuring-related reversals, net of $7 million tax, was $360 million and $724 million for the three and six months ended June 30, 2002, respectively.
  (8) Loans include loans held for sale of $2,067 million and $1,572 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (9) Includes consumer balances that are placed on nonaccrual status when the collection of contractual principal or interest becomes 90 days past due.
  (10) Nonperforming loans includes loans held for sale of $2 million and $3 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (11) Related assets consist of loans outstanding, including loans held for sale, and other real estate owned.

8


Retail – continued

Quarterly Results

Retail net income was $373 million, up $13 million, or 4% (excluding the $11 million after-tax benefit from a restructuring charge reversal in the prior year).

        Total revenue, net of interest expense increased 3% to $1.5 billion. Net interest income was $1.1 billion, up 3%, primarily from growth in home equity loans and core deposits, partially offset by lower time deposits and spread compression. Noninterest income was $461 million, up 4%, as higher deposit service charges, debit card revenue, and investment sales were partially offset by the intentional reduction of non-branded ATM machines and the elimination of the teller service fee.

        Noninterest expense was $842 million, up 3% (excluding the $18 million pre-tax benefit from the restructuring charge reversal in the prior year), primarily due to increased incentive compensation and commissions, as well as higher benefit costs. This increase was partially offset by lower fraud and other operating expenses.

        The provision for credit losses of $108 million was relatively unchanged as higher net charge-offs in the real estate and vehicle portfolios were offset by lower net charge-offs in tax-refund anticipation and small business loans. As a percentage of average loans, net charge-offs were 0.85%, down from 0.90%.

        The allowance for credit losses of $688 million represented 1.33% of period-end loans. Nonperforming assets were $788 million, up 11% from the prior year.

Year-To-Date Results

Retail year-to-date net income was $768 million, up $44 million, or 6% (excluding the $11 million after-tax benefit from a restructuring charge reversal in the prior year).

        Total revenue, net of interest expense increased 2% to $3.1 billion. Net interest income was $2.2 billion, up 3%, primarily from growth in home equity loans and core deposits, partially offset by lower time deposits and spread compression. Noninterest income was $920 million, up 2%, as higher deposit service charges, debit card revenue, and revenues generated from the sale of student loans were partially offset by the intentional reduction of non-branded ATM machines.

        Noninterest expense increased $31 million, or 2% (excluding the $18 million pre-tax benefit from the restructuring charge reversal in the prior year), primarily due to increased collections expenses, benefit costs, incentive compensation and production related expenses. This increase was partially offset by lower fraud and other operating expenses as well as other expense improvements.

        The provision for credit losses was $224 million, down $22 million, or 9%, due primarily to net charge-off improvements in the vehicle, small business commercial, and tax related portfolios, partially offset by increases in home equity. As a percentage of average loans, net charge-offs were 0.82%, down from 1.02%.

9


Commercial Banking
Commercial Banking offers a broad array of products, including global cash management, treasury services, capital markets, commercial cards, lending and other noncredit products and services to corporate banking and middle market banking customers.

Three Months Ended June 30
Six Months Ended June 30
    Change
  Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (12)   $ 574   $ 598   $ (24 )  (4 )% $ 1,143   $ 1,253   $ (110 )  (9 )%
  Banking fees and commissions (4)    234    224    10    4    425    399    26    7  
  Credit card revenue (5)    27    20    7    35    50    34    16    47  
  Service charges on deposits (6)    185    173    12    7    360    357    3    1  
  Fiduciary and investment  
   management fees (13)    (1 )  -    (1 )  -    -    (1 )  1    N/M  
  Investment securities losses    (2 )  (1 )  (1 )  N/M  (2 )  (1 )  (1 )  N/M  
  Trading gains (losses) (14)    (75 )  81    (156 )  N/M  (58 )  107  (165 )  N/M  
  Other income (loss)    8    (43 )  51    N/M    18    (70 )  88    N/M  

    Total noninterest income    376    454    (78 )  (17 )  793    825    (32 )  (4 )

      Total revenue, net of interest expense    950    1,052    (102 )  (10 )  1,936    2,078    (142 )  (7 )
Provision for credit losses    10    274    (264 )  (96 )  138    555    (417 )  (75 )
Salaries and employee benefits    295    261    34    13    572    520    52    10  
Other expense    305    331    (26 )  (8 )  595    632    (37 )  (6 )

Total noninterest expense before  
  restructuring-related charges (reversals)    600    592    8    1    1,167    1,152    15    1  
Restructuring-related charges (reversals)    -    (4 )  4    N/M    -    (4 )  4    N/M  

  Total noninterest expense    600    588    12    2    1,167    1,148    19    2  

Income before income taxes    340    190    150    79    631    375    256    68  
Applicable income taxes    91    43    48    N/M    165    85    80    94  

  Net income (15)   $ 249   $ 147   $ 102    69   $ 466   $ 290   $ 176    61  

Memo-Revenue by activity:  
  Lending-related revenue   $ 434   $ 404   $ 30    7 % $ 864   $ 849   $ 15    2 %
  Credit derivative hedge portfolio    (143 )  33    (176 )  N/M    (197 )  -    (197 )  -  
  Global treasury services    395    399    (4 )  (1 )  785    828    (43 )  (5 )
  Capital markets (16)    253    196    57    29    454    364    90    25  
  Other    11    20    (9 )  (45 )  30    37    (7 )  (19 )

FINANCIAL PERFORMANCE:  
Return on average common equity    13 %  8 %  5 %  13 %  8 %  5 %
Efficiency ratio    63    56    7    60    55    5  
Efficiency ratio excluding credit hedge portfolio    55    58    (3 )  55    55    -  
Headcount:  
  Corporate banking  
    (including capital markets)    2,615    2,315    300    13 %
  Middle market    2,491    3,023    (532 )  (18 )
  Global treasury services    3,239    3,299    (60 )  (2 )
  Operations, technology, and other administration    2,048    2,270    (222 )  (10 )

    Total headcount    10,393    10,907    (514 )  (5 )

ENDING BALANCES:  
Loans (17)   $57,775 $64,874 $(7,099 )  (11) %  
Assets    108,226    94,348    13,878    15  
Demand deposits    30,324    24,209    6,115    25  
Savings (18)    9,332    7,496    1,836    24  
Time (18)    9,110    4,019    5,091    N/M
Foreign offices    10,838    8,409    2,429    29  

  Total deposits    59,604    44,133    15,471    35  
Equity    7,409    7,365    44    1  

AVERAGE BALANCES:  
Loans   $58,046 $67,011 $(8,965 )  (13 )% $58,996 $69,046 $(10,050 )  (15) %
Assets    98,325    94,423    3,902    4    95,696    96,794    (1,098 )  (1 )
Demand deposits    24,402    22,430    1,972    9    23,496    22,556    940    4  
Savings (18)    10,005    7,416    2,589    35    9,659    2,900    6,759    N/M  
Time (18)    3,529    5,083    (1,554 )  (31 )  5,783    13,404    (7,621 )  (57 )
Foreign offices    10,443    8,299    2,144    26    9,729    8,230    1,499    18  

  Total deposits    48,379    43,228    5,151    12    48,667    47,090    1,577    3  
Equity    7,409    7,365    44    1    7,409    7,365    44    1  

10


Commercial Banking – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY                                    
Net charge-offs   $ 105   $ 274   $ (169 )  (62 )% $ 233   $ 555   $ (322 )  (58 )%
Annualized net charge-off ratio    0.72 %  1.64 %  (0.92) %    0.79 %  1.61% (0.82) %  
Nonperforming assets:  
  Nonperforming loans (19)   $ 1,693   $ 2,297   $ (604 )  (26 )%
  Other, including OREO    22    30    (8 )  (27 )

Total nonperforming assets    1,715    2,327    (612 )  (26 )
Allowance for credit losses    2,976    3,071    (95 )  (3 )
Allowance to period end loans (17)    5.18 %  4.74 %  0.44 %
Allowance to nonperforming loans (19)    176    140    36  
Nonperforming assets to related assets (11)    2.97  3.58  (0.61)

CORPORATE BANKING:  
Loans-ending balance   $ 29,319   $ 31,773   $ (2,454 )  (8 )%
          -average balance    29,222    33,322    (4,100 )  (12 ) $ 29,809   $ 34,600   $ (4,791 )  (14 )
Deposits-ending balance    32,730    22,929    9,801    43  
              -average balance    24,251    21,729    2,522    12    25,514    25,394    120    -  
Credit quality:  
  Net charge-offs    63    168    (105 )  (63 )  144    331    (187 )  (56 )
  Annualized net charge-off ratio    0.86 %  2.02 %  (1.16) %    0.97 %  1.91 %  (0.95) %  
  Nonperforming loans   $ 705   $ 1,161   $ (456 )  (39 )
  Nonperforming loans to total loans    2.40 %  3.65 %  (1.25) %

SYNDICATIONS:  
Lead arranger deals:  
  Volume (in billions)   $ 15.9   $ 18.1   $ (2.2 )  (12 )% $ 30.7   $ 33.0   $ (2.3 )  (7 )%
  Number of transactions    95    70    25    36    141    115    26    23  
  League table standing-rank    4    4    -    -    4    4    -    -  
  League table standing-market share    6 %  5 %  1 %       6 %  5 %  1 %

MIDDLE MARKET BANKING:  
Loans-ending balance   $ 28,456   $ 33,101   $ (4,645 )  (14 )%
          -average balance    28,824    33,689    (4,865 )  (14 ) $ 29,187   $ 34,446   $ (5,259 )  (15 )
Deposits-ending balance    26,874    21,204    5,670    27  
              -average balance    24,128    21,499    2,629    12    23,153    21,696    1,457    7  
Credit quality:  
  Net charge-offs    42    106    (64 )  (60 )%  89    224    (135 )  (60 )%
  Annualized net charge-off ratio    0.58 %  1.26 %  (0.68) %    0.61 %  1.30 %  (0.69) %
  Nonperforming loans   $ 988   $ 1,136   $ (148 )  (13 )%
  Nonperforming loans to total loans    3.47 %  3.43 %  0.04 %

             For additional footnote detail see page 8.

  (12) Net interest income-FTE includes tax equivalent adjustments of $25 million and $23 million for the three months ended June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003 and 2002, tax equivalent adjustments were $48 million and $44 million, respectively.
  (13) Fiduciary and investment management fees include asset management fees, personal trust fees, other trust fees and advisory fees.
  (14) Trading gains (losses) primarily includes realized and unrealized mark-to-market changes from trading assets, derivative financial instruments and foreign exchange products.
  (15) Net income before restructuring-related reversals, net of $1 million tax, was $144 million and $287 million for the three and six months ended June 30, 2002, respectively.
  (16) Capital markets includes trading income and underwriting, syndicated lending and advisory fees.
  (17) Loans include loans held for sale of $327 million and $202 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.
  (18) Prior period amounts have been reclassified to conform to the current presentation.
  (19) Nonperforming loans include loans held for sale of $6 million and $103 million at June 30, 2003 and 2002, respectively. These amounts are not included in allowance for credit losses coverage statistics.

Quarterly Results

Commercial Banking net income was $249 million, an increase of $105 million, or 73% (excluding the $3 million after-tax benefit from a restructuring charge reversal in the prior year).

11


Commercial Banking – continued

        The current period included a $143 million pre-tax loss on the credit derivatives hedge portfolio and the $95 million pre-tax reduction in allowance for credit losses. The prior year included a $33 million pre-tax gain on the credit derivatives hedge portfolio. Excluding the impact of the credit derivatives hedge portfolio and the allowance for credit losses release, net income was $280 million, an increase of $154 million. The improvement was driven by improved credit quality and strength in capital markets, partially offset by declining loan volumes and deposit margin compression.

        Net interest income decreased 4% to $574 million, reflecting compressed deposit spreads from falling interest rates and a 13% reduction in average loan volume, partially offset by continued improvement in corporate banking and middle market loan spreads. In the corporate bank, loan volumes declined, reflecting decreased demand for financing as well as customers supporting their funding needs through public debt issuance.

        Losses on the credit derivatives hedge portfolio negatively impacted trading income by $143 million in the current quarter, compared to a $33 million positive impact to trading income in the year-ago quarter. The current net notional amount of the credit derivatives hedge portfolio was $5.3 billion.

        Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $519 million, an increase of $98 million, or 23%. This increase was primarily due to higher capital markets revenue, including fixed income and asset-backed originations and derivatives trading, gains on loan sales in the current quarter compared to losses in the prior year, and higher revenue from global treasury services.

        Noninterest expense of $600 million was relatively flat. Expense management efforts during the past year held operating expenses relatively stable, despite higher compensation related expenses.

        Credit quality continued to improve, as indicated by a $169 million, or 62%, decline in net charge-offs, as corporate banking gross charge-offs declined and middle market recoveries were higher than normal.

        The improvement in credit quality and reduced size of the loan portfolio led to a $95 million reduction in the allowance for credit losses to $3.0 billion. Nonperforming loans declined 26% to $1.7 billion, reflecting declines of 39% in corporate banking and 13% in middle market banking.

Year-To-Date Results

Commercial Banking reported net income of $466 million, up $176 million, or 61%. The current year included a $197 million pre-tax loss on the credit derivatives hedge portfolio and a $95 million pre-tax reduction in the allowance for credit losses. Excluding the impact of the credit derivatives hedge portfolio and the allowance for credit losses release, net income was $531 million, an increase of $241 million. This improvement was primarily driven by improved credit quality and strength in capital markets, partially offset by the impact of declining loan volumes and deposit margin compression.

        Net interest income was $1.1 billion, down $110 million, or 9%, reflecting a 15% reduction in average loan volume and compressed deposit spreads due to falling interest rates, partially offset by improved loan spreads.

        Noninterest income (excluding the impact of the credit derivatives hedge portfolio) was $990 million, an increase of $165 million, or 20%, from the first half of 2002. This increase was primarily driven by higher revenue from a number of capital markets activities, gains on loan sales in the current year compared to losses in the prior year, gains in tax-oriented investments and increased revenue from global treasury services.

        Ongoing expense management efforts held noninterest expense fairly flat at $1.2 billion, despite higher compensation related expenses.

        Credit quality improved significantly from 2002, as demonstrated by a $322 million, or 58%, reduction in net charge-offs. The provision for credit losses was $138 million in 2003, and included a $95 million reduction in the allowance for credit losses.

12


Card Services
Card Services offers customers co-brand, affinity and other credit cards, including leading corporations, financial institutions, universities, sports franchises and affinity organizations. All of these cards carry the respective VISA® or MasterCard® brand names.

        With more than 52 million cards in circulation, Card Services is the third-largest credit card provider in the United States and the largest VISA credit card issuer in the world. Card Services is also a leader in online card marketing and customer service, with more than 4.2 million registered users of its website.

Reported Basis

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (20) (21)   $ 332   $ 268   $ 64    24 % $ 641   $ 519   $ 122    24 %
  Banking fees and commissions (4)    9    17    (8 )  (47 )  20    42    (22 )  (52 )
  Credit card revenue (5) (20)    825    891    (66 )  (7 )  1,599    1,744    (145 )  (8 )
  Other income    34    28    6    21    30    10    20    N/M  

    Total noninterest income    868    936    (68 )  (7 )  1,649    1,796    (147 )  (8 )

      Total revenue, net of interest expense    1,200    1,204    (4 )  -    2,290    2,315    (25 )  (1 )
Provision for credit losses    182    118    64    54    343    215    128    60  
Salaries and employee benefits    156    142    14    10    309    288    21    7  
Other expense    408    462    (54 )  (12 )  782    937    (155 )  (17 )

Total noninterest expense before  
  restructuring-related charges (reversals)    564    604    (40 )  (7 )  1,091    1,225    (134 )  (11 )
Restructuring-related charges (reversals)    -    (19 )  19    N/M    -    (19 )  19    N/M  

  Total noninterest expense    564    585    (21 )  (4 )  1,091    1,206    (115 )  (10 )

Income before income taxes    454    501    (47 )  (9 )  856    894    (38 )  (4 )
Applicable income taxes    175    193    (18 )  (9 )  329    347    (18 )  (5 )

  Net income (22)   $ 279   $ 308   $ (29 )  (9 ) $ 527   $ 547   $ (20 )  (4 )

Memo-Net securitization gains  
   (amortization)   $ 17   $ (13 ) $ 30    N/M    18   $ (44 ) $ 62    N/M  

FINANCIAL PERFORMANCE:  
Return on average common equity    18 %  19 %  (1 )%    17 %  17 %  0 %
Efficiency ratio    47    49    (2 )      48    52  (4 )
Headcount    10,751    10,298    453    4 %

ENDING BALANCES:  
Owned loans:  
  Held in portfolio   $ 6,308   $ 5,115   $ 1,193    23 %
  Held for sale (23)    7,782    4,000    3,782    95  

     Total owned loans    14,090    9,115    4,975    55  
Seller's interest and accrued interest receivable    24,414    21,897    2,517    11  

  Total receivables    38,504    31,012    7,492    24  
Assets    43,597    34,002    9,595    28  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
Owned loans:  
  Held in portfolio   $ 7,085   $ 5,393   $ 1,692    31 % $ 7,435   $ 5,186   $ 2,249    43 %
  Held for sale (23)    7,005    3,066    3,939    N/M    5,796    2,654    3,142    N/M  

    Total owned loans    14,090    8,459    5,631    67    13,231    7,840    5,391    69  
Seller's interest and accrued interest receivable    23,281    21,916    1,365    6    24,861    22,216    2,645    12  

  Total receivables    37,371    30,375    6,996    23    38,092    30,056    8,036    27  
Assets    42,886    34,467    8,419    24    43,529    34,610    8,919    26  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

13


Card Services – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 182   $ 118   $ 64    54 % $ 343   $ 215   $ 128    60 %
Annualized net charge-off ratio    5.17 %  5.58 %  (0.41 )%    5.18 %  5.48 %  (0.30 )%
Delinquency ratio:  
  30+ days    3.22    2.72    0.50      
  90+ days    1.49    1.23    0.26  
Allowance for credit losses   $396 $396  -  -
Allowance to period end loans held in portfolio    6.28 %  7.74 %  (1.46 )%

OTHER DATA:  
Charge volume (in billions)   $ 40.5   $ 38.4   $ 2.1    5 % $ 78.8   $ 72.4   $ 6.4    9 %
New accounts opened (in thousands) (24)    1,823    983    840    85    2,798    1,924    874    45  
Credit cards issued (in thousands)    52,073  48,788  3,285  7
Number of CardmemberServices.com  
  customers (in millions)    4.2    2.6    1.6    62  
Paymentech (in millions):            
  Bank card volume   $ 37,258   $ 30,076   $ 7,182    24   $ 71,702   $ 58,037   $ 13,665    24  
  Total transactions    1,342    1,016    326    32    2,560    1,956    604    31  

Quarterly Results – Reported

Card Services’ net income decreased 6% to $279 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment.

        Total revenue, net of interest expense remained flat at $1.2 billion. Net interest income increased 24% to $332 million, reflecting higher owned loan balances, partially offset by the impact of lower, more competitive yields. Average owned loan balances were $14.1 billion, an increase of $5.6 billion, or 67%, due to a lower percentage of securitized loans to managed loans in the current period. End of period owned loans increased $5.0 billion, or 55%, from the prior year.

        Noninterest income declined 7% to $868 million, primarily driven by lower yields earned on securitized loans partially offset by increased securitization activity and higher charge volume. Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 19% to $149 million, resulting from a 32% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $564 million, a decline of 7% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses. The Corporation reduced direct mail marketing expense but increased spending for existing customers.

        Reported net charge-offs were $182 million, an increase of $64 million, or 54%. The reported net charge-off ratio was 5.17%, down from 5.58%. The reported 30-day delinquency ratio increased to 3.22% from 2.72% in the prior year.

        The Corporation believes that it is more meaningful to discuss credit performance on a managed basis since the on-balance sheet portfolio has a greater percentage of new originations and, therefore, is less seasoned. See the Managed Basis section below for this information.

Year-to-Date Results – Reported

Card Services’ year-to-date net income decreased 2% to $527 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment partially offset by reduced marketing expenses and expense management.

        Total revenue, net of interest expense decreased 1% to $2.3 billion. Net interest income increased 24% to $641 million, reflecting higher owned loan balances, partially offset by the impact of lower, more competitive yields. Average owned loan balances were $13.2 billion, an increase of $5.4 billion, or 69%, due to a lower percentage of securitized loans to managed loans in the current period.

14


Card Services – continued

        Noninterest income declined 8% to $1.6 billion, primarily driven by lower yields earned on securitized loans and lower securitized loan balances partially offset by increased securitization activity and higher charge volume. Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 16% to $283 million, resulting from a 31% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $1.1 billion, a decline of 11% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses and operational efficiencies.

        Reported net charge-offs were $343 million, an increase of $128 million, or 60%. The reported net charge-off ratio was 5.18%, down from 5.48%.

        The Corporation believes that it is more meaningful to discuss credit performance on a managed basis since the on-balance sheet portfolio has a greater percentage of new originations and, therefore, is less seasoned. See the Managed Basis section below for this information.

Managed Basis

Through securitization, the Corporation transforms a substantial portion of its credit card receivables into securities, which are sold to investors. Securitization impacts the Corporation’s consolidated balance sheet by removing those credit card receivables that have been sold and by reclassifying those credit card receivables whose ownership has been transformed into certificate form (referred to as “seller’s interest”) from loans to investments. Gain or loss on the sale of credit card receivables, net of amortization of transaction costs and amortization from securitization repayments, is reported as securitization income in other income. Securitization also impacts the Corporation’s consolidated income statement by reclassifying interest income and fees, interchange income, credit losses and recoveries related to securitized receivables as securitization income. Credit card interest income and fees, interchange income, credit losses and recoveries related to credit card receivables that have been converted to certificate form are reclassified as investment income in net interest income.

        The Corporation evaluates its Card Services line of business trends on a managed basis, which treats the securitization as a secured financing transaction and assumes that receivables are still on the balance sheet. The Corporation manages its Card Services operations on a managed basis because the receivables that are securitized are subject to underwriting standards comparable to the owned portfolio and are serviced by operating personnel without regard to ownership. The Corporation believes that investors should be informed, and often request information, about the credit performance of the entire managed portfolio in order to understand the quality of the Card Services originations and the related credit risks inherent in the owned portfolio and retained interests in securitizations. In addition, the Corporation funds its Card Services operations, reviews operating results and makes decisions about allocating resources, such as employees and capital, on a managed basis. See “Loan Securitizations” on page 41 and Note 9, “Credit Card Securitizations,” on pages 94-95 of the Corporation’s 2002 Annual Report for additional information related to the Corporation’s securitization activity.

15

Card Services – continued

        The following table presents Card Services information on a managed basis.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (20) (21)   $ 1,488   $ 1,526   $ (38 )  (2 )% $2,965   $3,081 $(116 ) $(4 )
                                     
  Banking fees and commissions (4)    9    17    (8 )  (47 )  20    42    (22 )  (52 )
  Credit card revenue (5)    438    441    (3 )  (1 )  854    836    18    2  
  Other loss    34    28    6    21    30    10    20    N/M  

    Total noninterest income (21)    481    486    (5 )  (1 )  904    888    16    2  

      Total revenue, net of interest expense    1,969    2,012    (43 )  (2 )  3,869    3,969    (100 )  (3 )
                                     
Provision for credit losses (21)    951    926    25    3    1,922    1,869    53    3  
                                     
Salaries and employee benefits    156    142    14    10    309    288    21    7  
Other expense    408    462    (54 )  (12 )  782    937    (155 )  (17 )

Total noninterest expense before  
  restructuring-related charges (reversals)    564    604    (40 )  (7 )  1,091    1,225    (134 )  (11 )
Restructuring-related charges (reversals)    -    (19 )  19    N/M    -    (19 )  19    N/M  

  Total noninterest expense    564    585    (21 )  (4 )  1,091    1,206    (115 )  (10 )

Income before income taxes    454    501    (47 )  (9 )  856    894    (38 )  (4 )
Applicable income taxes    175    193    (18 )  (9 )  329    347    (18 )  (5 )

  Net income (22)   $ 279   $ 308   $ (29 )  (9 )% $ 527   $ 547   $ (20 )  (4 )%

Memo-Net securitization gains                    
 (amortization)   $ 17   $ (13 ) $ 30    N/M   $18   $ (44 ) $ 62    N/M  

FINANCIAL PERFORMANCE:  
Percentage of average outstandings:  
  Net interest income - FTE    8.17 %  9.29 %  (1.12 )%    8.17 %  9.40 %  (1.23 )%
  Provision for credit losses    5.22  5.64  (0.42 )    5.29  5.70  (0.41 )
  Noninterest income    2.64  2.96  (0.32 )    2.49  2.71  (0.22 )
  Risk adjusted margin    5.59  6.61  (1.02 )    5.37  6.41  (1.04 )
  Noninterest expense    3.10  3.56  (0.46 )    3.01  3.68  (0.67 )
  Pretax income - FTE    2.49  3.05  (0.56 )    2.36  2.73  (0.37 )
  Net income    1.53  1.87  (0.34 )    1.45  1.67  (0.22 )
                                     
Return on average common equity    18    19    (1 )    17    17    -  
Efficiency ratio    29    29    -        28    31    (3 )
Headcount    10,751    10,298    453    4 %

ENDING BALANCES:  
  Held in portfolio   $ 6,308   $ 5,115   $ 1,193    23 %
  Held for sale (23)    7,782    4,000    3,782    95  
  Securitized    35,832    35,797    35    -  
  Seller's interest and accrued interest receivable    24,414    21,897    2,517    11  

    Total loans    74,336    66,809    7,527    11  
                                     
Assets    79,429    69,799    9,630    14  
Equity    6,361    6,361    -    -  

AVERAGE BALANCES:  
  Held in portfolio   $ 7,085   $ 5,393   $ 1,692    31 % $ 7,435   $ 5,186   $ 2,249    43 %
  Held for sale (23)    7,005    3,066    3,939    N/M    5,796    2,654    3,142    N/M  
  Securitized    35,664    35,555    109    -    35,116    36,070    (954 )  (3 )
  Seller's interest and accrued interest receivable    23,281    21,916    1,365    6    24,861    22,216    2,645    12  

    Total loans    73,035    65,930    7,105    11    73,208    66,126    7,082    11  
                                     
Assets    78,550    70,022    8,528    12    78,645    70,679    7,966    11  
Equity    6,361    6,361    -    -    6,361    6,361    -    -  

16


Card Services – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
   Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs   $ 951   $ 926   $ 25    3 % $ 1,922   $ 1,869   $ 53    3 %
                                     
Annualized net charge-off ratio    5.21 %  5.62 % (0.41 )% 5.25 % 5.66 %  (0.41 )%
12 month lagged (25)    5.77    5.86    (0.09 )    5.81  5.81  -
                                     
Delinquency ratio:  
  30+ days    3.95    3.83    0.12      
  90+ days    1.85    1.72    0.13  
                                     
Allowance for credit losses   $396 $396 -  -
                                     
Allowance to period end loans held in portfolio    6.28 %  7.74 %  (1.46 )%

OTHER DATA:  
Charge volume (in billions)   $ 40.5   $ 38.4   $ 2.1    5 % $ 78.8   $ 72.4   $ 6.4    9 %
New accounts opened (in thousands) (24)    1,823    983    840    85    2,798    1,924    874    45  
Credit cards issued (in thousands)    52,073  48,788  3,285  7
Number of CardmemberServices.com  
  customers (in millions)    4.2    2.6    1.6    62  
Paymentech (in millions):      
  Bank card volume   $37,258 $30,076 $7,182  24 % $71,702 $58,037 $13,665  24 %
  Total transactions    1,342    1,016    326    32    2,560    1,956    604    31  

            For additional footnote detail see pages 8 and 11.

  (20) Net interest income-FTE did not have tax equivalent adjustments for the three and six months ended June 30, 2003 and 2002, respectively.
  (21) On a reported basis, income earned on securitized loans is reported in credit card revenue and income earned on seller’s interest is reported in net interest income. On a managed basis, net interest income, noninterest income and provision for credit losses are reported in their respective income statement lines.
  (22) Net income before restructuring-related reversals, net of $7 million tax, was $296 million and $535 million for the three and six months ended June 30, 2002, respectively.
  (23) On a reported basis, these amounts are not included in allowance for credit losses coverage statistics.
  (24) Net accounts opened includes originations, purchases and sales.
  (25) 2002 ratio includes Wachovia net charge-offs but excludes Wachovia loans.

Quarterly Results – Managed

Card Services’ net income decreased 6% to $279 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment.

        Total revenue, net of interest expense decreased 2% to $2.0 billion. Net interest income declined 2% to $1.5 billion, reflecting lower, more competitive yields, partially offset by the effect of higher managed loan balances. Average managed loans were $73.0 billion, an increase of $7.1 billion, or 11%. End of period loans increased $7.5 billion, or 11%, from the prior year.

        Noninterest income of $481 million was essentially flat. The benefit of increased securitization activity and interchange revenue due to higher charge volume was offset by higher revenue sharing paid to partners (a deduction from revenue). Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 19% to $149 million, resulting from a 32% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $564 million, a decline of 7% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses. The Corporation reduced direct mail marketing expense but increased spending for existing customers.

        Managed net charge-offs increased $25 million, or 3%, to $951 million primarily driven by higher managed loan balances. The managed net charge-off ratio improved to 5.21% from 5.62%, aided in part by slightly higher than normal recoveries. The managed 30-day delinquency ratio, however, increased to 3.95% from 3.83% in the prior year.

17


Card Services – continued

Year-To-Date Results – Managed

Card Services’ year-to-date net income decreased 2% to $527 million (excluding the $12 million after-tax benefit from a restructuring charge reversal in the prior year), primarily resulting from the continued competitive pricing environment partially offset by reduced marketing expenses and expense management.

        Total revenue, net of interest expense decreased 3% to $3.9 billion. Net interest income decreased 4% to $3.0 billion, reflecting lower, more competitive yields partially offset by the effect of higher managed loan balances. Average managed loan balances were $73.2 billion, an increase of $7.1 billion, or 11%.

        Noninterest income increased 2% to $904 million, primarily driven by increased securitization activity and interchange revenue due to higher charge volume partially offset by higher revenue sharing paid to partners (a deduction from revenue). Noninterest income in both the current and prior year included modest gains from the sale of small portfolios.

        Paymentech Inc., the Corporation’s merchant card processor, reported an increase in total revenue of 16% to $283 million, resulting from a 31% increase in total transactions and a 24% increase in bank card volume, driven primarily by the purchase of the Scotia Bank merchant acquirer business in the fourth quarter of 2002.

        Noninterest expense was $1.1 billion, a decline of 11% (excluding the $19 million pre-tax benefit from a restructuring charge reversal in the prior year), due to reduced marketing expenses and operational efficiencies.

        Managed net charge-offs were $1.9 billion, an increase of $53 million, or 3%, primarily driven by higher managed loan balances partially offset by slightly higher than normal recoveries. The managed net charge-off ratio was 5.25%, down from 5.66%.

18


Card Services – continued

        The following table reconciles line items presented on a reported basis with those presented on a managed basis:

Three Months Ended June 30
Six Months Ended June 30
(in millions):
2003
2002
2003
2002
INCOME STATEMENT DATA:          
Net interest income - FTE (3) (21) 
  Reported data for the period  $      332   $      268   $      641   $      519  
  Securitization adjustments  1,156   1,258   2,324   2,562  

    Managed net interest income  1,488   1,526   2,965   3,081  
           
Credit card revenue: 
  Reported data for the period  $      825   $      891   $   1,599   $   1,744  
  Securitization adjustments  (387 ) (450 ) (745 ) (908 )

    Managed credit card revenue  438   441   854   836  
           
Noninterest income: 
  Reported data for the period  $      868   $      936   $   1,649   $   1,796  
  Securitization adjustments  (387 ) (450 ) (745 ) (908 )

    Managed noninterest income  481   486   904   888  
           
Total revenue, net of interest expense: 
  Reported data for the period  $   1,200   $   1,204   $   2,290   $   2,315  
  Securitization adjustments  769   808   1,579   1,654  

    Managed total revenue, net of interest expense  1,969   2,012   3,869   3,969  
           
 Provision for credit losses 
  Reported data for the period  $      182   $      118   $      343   $      215  
  Securitization adjustments  769   808   1,579   1,654  

    Managed provision for credit losses  951   926   1,922   1,869  

ENDING BALANCES: 
Owned loans: 
  Held in portfolio  $   6,308   $   5,115  
  Held for sale (23)  7,782   4,000  

    Total owned loans  14,090   9,115  
Seller's interest and accrued interest receivable  24,414   21,897  

    Total receivables  38,504   31,012  
Securitized loans  35,832   35,797  

    Total managed loans  74,336   66,809  
           
Assets: 
  Reported  43,597   $ 34,002  
  Securitization adjustments  35,832   35,797  

    Managed assets  79,429   69,799  

AVERAGE BALANCES: 
Owned loans: 
  Held in portfolio  $   7,085   $   5,393   $   7,435   $   5,186  
  Held for sale (23)  7,005   3,066   5,796   2,654  

    Total owned loans  14,090   8,459   13,231   7,840  
Seller's interest and accrued interest receivable  23,281   21,916   24,861   22,216  

    Total receivables  37,371   30,375   38,092   30,056  
Securitized loans  35,664   35,555   35,116   36,070  

    Total managed loans  73,035   65,930   73,208   66,126  
           
Total assets: 
  Reported  $ 42,886   $ 34,467   $ 43,529   $ 34,610  
  Securitization adjustments  35,664   35,555   35,116   36,069  

    Managed assets  78,550   70,022   78,645   70,679  

CREDIT QUALITY: 
Net charge-offs 
  Reported  $      182   $      118   $      343   $      215  
  Securitization adjustments  769   808   1,579   1,654  

    Managed net charge-offs  951   926   1,922   1,869  

19


Investment Management
The Investment Management Group (IMG) provides investment, insurance, trust and private banking services to individuals. IMG also provides investment and investment-related services, including retirement and custody services, securities lending and corporate trust services to institutions. On July 24, 2003, the Corporation announced an agreement to sell the Corporate Trust Services business, part of the Investment Management line of business. The sale price is $720 million, of which approximately 10% is contingent upon business retention. The sale includes corporate, municipal, structured finance and escrow businesses as well as the document custody and London corporate trust operations. The closing of the transaction, pending regulatory approvals, is expected to occur later this year.

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
INCOME STATEMENT DATA:                                    
Net interest income-FTE (3) (26)   $ 100   $ 105   $ (5 )  (5 )% $ 198   $ 219   $ (21 )  (10 )%
           
  Banking fees and commissions (4)    70    71    (1 )  (1 )  136    131    5    4  
  Service charges on deposits (6)    5    4    1    25    10    9    1    11  
  Fiduciary and investment  
   management fees    179    184    (5 )  (3 )  356    372    (16 )  (4 )
  Other income    2    8    (6 )  (75 )  2    9    (7 )  (78 )

    Total noninterest income    256    267    (11 )  (4 )  504    521    (17 )  (3 )

      Total revenue, net of interest expense    356    372    (16 )  (4 )  702    740    (38 )  (5 )
           
Provision for credit losses    6    -    6    -    8    5    3    60  
           
Salaries and employee benefits    120    111    9    8    237    227    10    4  
Other expense    95    99    (4 )  (4 )  194    186    8    4  

Total noninterest expense before  
  restructuring-related charges (reversals)    215    210    5    2    431    413    18    4  
Restructuring-related charges (reversals)    -    (1 )  1    N/M    -    (1 )  1    N/M  

  Total noninterest expense    215    209    6    3    431    412    19    5  

Income before income taxes    135    163    (28 )  (17 )  263    323    (60 )  (19 )
Applicable income taxes    50    60    (10 )  (17 )  98    119    (21 )  (18 )

  Net income (27)   $ 85   $ 103   $ (18 )  (17 )% $ 165   $ 204   $ (39 )  (19 )%

Memo-Consolidated gross insurance related revenues (28)   $ 118   $ 116   $ 2    2 % $ 235   $ 239   $ (4 )  (2 )%

FINANCIAL PERFORMANCE:  
Return on average common equity    34 %  41 %  (7 )%       34    41 %  (7 )%
Efficiency ratio    60    56    4         61    56    5  
Headcount    4,605    4,924    (319 )  (6 )%  4,605    4,924    (319 )  (6 )%

ENDING BALANCES:  
Loans   $ 6,842   $ 7,088   $ (246 )  (3 )%
  Commercial    3,277    3,378    (101 )  (3 )
  Consumer    3,565    3,710    (145 )  (4 )
           
Assets    8,504    8,475    29    -  
           
Demand deposits    3,015    2,398    617    26  
Savings    5,143    3,887    1,256    32  
Time    3,726    3,279    447    14  
Foreign offices    256    282    (26 )  (9 )

  Total deposits    12,140    9,846    2,294    23  
           
Equity    992    992    -    -  

AVERAGE BALANCES:  
Loans   $ 6,605   $ 6,997   $ (392 )  (6 )% $ 6,680   $ 6,990   $ (310 )  (4 )%
  Commercial    3,049    3,294    (245 )  (7 )  3,099    3,294    (195 )  (6 )
  Consumer    3,556    3,703    (147 )  (4 )  3,581    3,696    (115 )  (3 )
           
Assets    8,360    8,458    (98 )  (1 )  8,400    8,380    20    -  
           
Demand deposits    2,199    2,003    196    10    2,127    2,035    92    5  
Savings    5,122    4,044    1,078    27    5,010    3,897    1,113    29  
Time    3,575    3,298    277    8    3,536    3,295    241    7  
Foreign offices    184    222    (38 )  (17 )  171    208    (37 )  (18 )

  Total deposits    11,080    9,567    1,513    16    10,844    9,435    1,409    15  
           
Equity    992    992    -    -    992    992    -    -  

20


Investment Management – continued

Three Months Ended June 30
Six Months Ended June 30
Change
Change
(Dollars in millions)
2003
2002
Amount
Percent
2003
2002
Amount
Percent
CREDIT QUALITY:                                    
Net charge-offs:  
  Commercial   $ 4   $ (1 ) $ 5    N/M   $ 5   $ 1   $ 4    N/M  
  Consumer    2    1    1    N/M    3    4    (1 )  (25 )

Total net charge-offs    6    -    6    -    8    5    3    60  
           
Annualized net charge-off ratios:  
  Commercial    0.52 %  (0.12) %  0.64 %    0.32 %  0.06 %  0.26 %
  Consumer    0.22  0.11  0.11    0.17  0.22  (0.05)
    Total net charge-off ratio    0.36  -  0.36    0.24  0.14  0.10
           
Nonperforming assets:  
  Commercial   $ 67   $ 33   $ 34    N/M
  Consumer    13    5    8    N/M

    Total nonperforming loans    80    38    42    N/M
  Other, including OREO    2    1    1    N/M

  Total nonperforming assets    82    39    43    N/M
           
Allowance for credit losses    40    25    15    60  
Allowance to period end loans    0.58 %  0.35 %  0.23 %
Allowance to nonperforming loans    50    66    (16 )
Nonperforming assets to related assets (11)    1.20  0.55  0.65

ASSETS UNDER MANAGEMENT  
  ENDING BALANCES:  
Mutual funds   $ 102,494   $ 90,220   $ 12,274    14 %
Other    68,395    55,767    12,628    23  

  Total assets    170,889    145,987    24,902    17  
           
By type:  
Money market    78,457    62,763    15,694    25  
Equity    40,584    42,165    (1,581 )  (4 )
Fixed income    51,848    41,059    10,789    26  

  Total assets    170,889    145,987    24,902    17  
           
By channel:  
Private client services    43,236    46,414    (3,178 )  (7 )
Retail brokerage    7,924    7,184    740    10  
Institutional    88,087    63,420    24,667    39  
Commercial cash sweep    7,949    9,199    (1,250 )  (14 )
Capital markets    3,049    3,736    (687 )  (18 )
External (29)    11,601    7,492    4,109    55  
All other direct (30)    9,043    8,542    501    6  

  Total assets    170,889    145,987    24,902    17  
           
Morningstar® Rankings:  
% of 4 and 5 ranked funds    53 %  51 %  2 %
% of 3+ ranked funds    91    91    -  

CORPORATE TRUST SECURITIES  
 ENDING BALANCES (in billions):  
Corporate trust securities  
  under administration   $ 1,013   $ 998   $ 15    2 %

PRIVATE CLIENT SERVICES:  
Number of private client advisors    634    668    (34 )  (5 )%
Number of private client offices    89    97    (8 )  (8 )
           
Total client assets-end of  
  period (31)   $ 64,270   $ 66,362   $ (2,092 )  (3 )
           
Ending balances  
  Loans    6,483    6,955    (472 )  (7 )
  Deposits    10,071    8,226    1,845    22  
           
Average balances  
  Loans    6,543    6,931    (388 )  (6 ) $ 6,629   $ 6,921   $ (292 )  (4 )%
  Deposits    9,752    8,361    1,391    17    9,549    8,181    1,368    17  

             For additional footnote detail see pages 8, 11 and 17.

  (26) Net interest income-FTE did not have material tax equivalent adjustments for the three or six months ended June 30, 2003 and 2002.
  (27) Net income before restructuring-related reversals was $102 million and $203 million for the three and six months ended June 30, 2002, respectively.
  (28) Includes insurance related revenues recorded in other lines of business.
  (29) Includes broker/dealers, trust companies, and registered investment advisors that sell, or offer, One Group funds.
  (30) One Group funds invested in other One Group funds and other mutual funds sub-advised.
  (31) Fiduciary, brokerage and other related assets (managed and non-managed).

21


Investment Management – continued

Quarterly Results

Investment Management net income totaled $85 million, a decline of $18 million, or 17%, reflecting a shift in mix of assets under management, deposit spread compression and higher operating costs.